Economy Was Hit Harder By Severe Winter Than Initially Feared
By Jim Puzzanghera, Los Angeles Times
WASHINGTON — The economy stumbled badly during the severe winter, much more than first estimated, according to a government report, and stalled a recovery that appeared poised to take off this year.
Economists, however, see the quarterly drop more as a delay in the nation’s long revival from the Great Recession. Other recent data indicate economic growth has picked up significantly this spring, putting the recovery back on a slowly improving track.
Total economic output shrank at an annual rate of 1 percent from January through March, the first quarterly contraction in three years and just the second since the recession ended nearly five years ago, the Commerce Department said Thursday.
The department’s revised figure for what is known as gross domestic product was far worse than the 0.1 percent growth initially reported last month. And the revision was steeper than the 0.5 percent contraction economists had anticipated.
The new reading also makes it unlikely that the economy will expand this year at the 3 percent rate economists previously projected.
“We’ve got to climb out of that hole” in the first quarter, said Brian Bethune, chief economist at consulting firm Alpha Economic Foresights. “You can think of it as a temporary setback, but it is going to pull down growth projections for this year.”
Investors shrugged off the report. The Dow Jones industrial average rose 65.56 points, or 0.4 percent, to 16,698.74.
It typically takes two straight quarters of contraction to signal a recession, and projections are for growth to return in the second quarter.
The economy expanded at a 2.6 percent annual rate in the fourth quarter last year. And heading into this year, the recovery appeared ready to reach what economists call takeoff velocity, which has been an elusive pace in the recovery.
“If the economy can demonstrate it can grow better than 3 percent on a sustained basis, it will motivate many more companies to accelerate business capital spending and also increase the pace of hiring,” said Bernard Baumohl, chief global economist at the Economic Outlook Group.
This winter, bitter cold and heavier-than-normal snowfall swept across much of the nation, chilling economic activity.
The big factor in the contraction was a larger decline than originally estimated in how much businesses spent to restock their shelves.
Companies increased their stockpiles of goods by just $49 billion in the first quarter, down sharply from $111.7 billion in the fourth quarter. The falloff shaved first-quarter economic growth by 1.62 percentage points.